Click on the iPod under "DEVICES" in iTunes. Click Check for Updates. Make sure you have the latest version of iTunes. http://apple.com/itunes/download/
To back up, RIGHT CLICK on the iPod under DEVICES, and click Back Up.
- Transfer iTunes purchases to the computer by:
- Transfer any other music by using a third-party program like one of those discussed here:
- Connect the iPod to the computer and make a backup by right clicking on the iPod under Devices in iTunes and select Back Up
- Restore the iPod from that backup. The restore will also update the iOS.
Note that the backup that iTunes makes does not include synced media like apps and music
Are you sure you have a 3G iPod? A 1G iPod can only go to iOS 3.1.3